User login

Land-use Regulations

A special report from the Samuel Zell/Robert Lurie Real Estate Center at the Wharton School of the University of Pennsylvania: Joseph Gyourko, Director and Bucksbaum Professor of Real Estate and Finance and Anita A. Summers, Director of Research and Professor Emeritas of Real Estate, and Business and Public Policy.

Land-use regulations have played a significant role in explaining the increase in house prices over the past quarter of a century across the country. Traditionally the price of land has accounted for only a small portion of housing costs but its share is growing substantially. This means that it is not demand alone that is accounting for the higher house values—the supply has become more inelastic. One possible explanation for the inelastic supply is the increased adoption of land-use regulations that limit building activity in local communities. Another is that we have run out of land.It has been hard to sort out the explanation, because we have had very little direct knowledge of the local regulatory environment. Land-use regulations are largely under local control, and so are the data describing them. The Zell/Lurie Real Estate Center at the Wharton School of the University of Pennsylvania amassed a national database of these data from 2,649 communities (whose combined populations represent about 60 percent of the population in U.S. localities) and a Philadelphia database of almost all 382 communities (whose combined populations represent about 90 percent of the region’s population). (Note that unlike other sections of this report, this chapter adds Mercer County, New Jersey, to the other nine counties.) The correlates of these survey results were determined by combining them with a host of census data, measures of community pressure, and land-use regulatory activity in the executive and legislative branches of the state governments—and by constructing an index of residential land-use regulation that calibrates the degree of regulatory control in a locality.